Learning to live within a budget can be the first way to alleviate, or avoid serious debt problems. No matter how much, or how little income you have, if you do not work within your means, you can get into serious financial problems.
Budgeting is all about keeping your expenses lower than your income. It is not difficult to work out, that regardless of how much you earn, if you spend more money than is coming in, you can only end up in financial difficulties.
This is why you read in the newspapers that a mega-rich businessman has gone bankrupt. But at the same time an old lady that lives down the block, survives well on a meagre pension.
This problem tends to arise when an individual, or family, fail to make a simple and efficient, financial plan, and live their lives within that plan. When people attempt to live without consideration of how much is coming in, and how much is going out, there can only be one result, and that is serious debt problems.
Borrowing money to pay for essentials, or even luxuries can be very wise financial move. For example, without your mortgage, the chances are you would never the able to purchase your home. Unfortunately, huge numbers of people use loans without any thought to the financial consequences of stretching yourself to the limits of your income, and beyond.
Any one who borrows money can be said to be in debt, but realistically, these days we only consider a person to be in debt, when they cannot make their payments. One of the main reasons that people slip into debt. Is because they do not pay due consideration to exactly how much they are spending each month.
This lack of attention is probably just an oversight; a person may have set out a proper budget for themselves. They may have properly calculated their income and all their main outgoings such as mortgage and credit card payments. Where they fall down is by not calculating all those tiny little incidentals that can add up to large amounts of money every month.
Many people also make a budget intending to stick to it, but then there are always emergency situations. Unfortunately, different people have a different concept of what an emergency is. Many people would consider a weekend away in the mountains an emergency if they have had a bad couple of weeks at work.
Maybe your child's birthday is coming around and they want a couple of expensive gifts. Well you can't let them down, so this is the emergency, and if you don't have the cash you can always just charge it to your card. These are the ways that people who believe that they are sticking to a strict budget find themselves with serious that problems.
Many people may worry that they have taken out a secured loan, such as a mortgage or car financing; they rightly believe that if they do not make the payments the company will wish to reclaim these items.
Strangely, people do not attach the same importance to other, unsecured debts, such as credit cards. Just because a loan is not secured, it does not mean that you can avoid repaying it. Finance houses who offer unsecured loans do have options for recovering this money.
But for some reason, so many people believe that spending cash they do not have on a credit card, somehow does not equal debt. If you can afford to pay off your credit card every month in full, then it is not debt. If you cannot pay in full, you are only putting the day that it may become a problem.
Casual buying is a way of life in America; it can also be a way of pretending to ourselves that we do not really have to pay back the cash we borrow.
The best way to avoid serious debt problems is to set a budget for yourself. Calculate exactly how much you bring in to the house, in total, each month. Calculate exactly how much you spend each month, this should include the not only the big items but also all the small spending such as a cup of coffee on the way into work every morning.
It sounds insignificant, but 20 cups of coffee per month could cost you $50 or $60. All the time you are thinking you are living to a budget. This type of expenditure is where these problems originate from.
You must cut back on everything you spend until the amount going out is less than the amount coming in. This is essential to keep the books balanced, and the debt collectors from phoning.
If you find that situation has already gone too far for you to deal with. Your best option may be to find an online broker that can arrange a debt conciliation loan, which can pay off all of your outstanding debts. This will enable you to start again, and learn to work within a proper and accurate budget.